What is Portfolio Management?

The portfolio management process involves managing the investments of individuals and institutions. The primary objective is to create a balanced portfolio that gets along with the investors’ financial goal, risk capacity, and time horizon. To achieve this, many investors also choose portfolio management services. In these services, the investments are managed by experts to make sure the portfolio is optimized. In this blog, we will explore what is portfolio management services in India, their objective, benefits, key elements, and a lot more. 

Portfolio Management Meaning

One can define portfolio management as the ownership of a collection of stocks, bonds, or other securities that might offer favorable returns in the future.  In the portfolio management process, tangible assets are included like real estate as they can have good returns in the future. It can be easily and actively managed by professionals or passively managed with a long-term approach.

What is Portfolio Management Services?

After understanding portfolio management meaning, let's explore what is portfolio management services. Portfolio management services are offered to individuals and institutions by a qualified portfolio manager. The manager takes the responsibility of managing their portfolio.  Based on the client’s financial goals, portfolio management services are customized. These services are mostly preferred by high-net-worth individuals searching for customized investment solutions.

Objectives of Portfolio Management

Following are the objectives of the portfolio management 

• Asset Allocation: The key objective of portfolio management is to allocate assets based on different categories like fixed income, equities, and commodities. To balance risk and reward according to the investor's financial goals.
• Portfolio Diversification: One of the main objectives of portfolio management is to reduce instability by diversifying your investments across various asset classes. 
• Maximising Returns: The portfolio management services aim to provide maximum returns within the defined risk parameters.
• Risk Management: Effective portfolio management recognizes, evaluates, and reduces any possible risks that are connected to investments. They try to keep the portfolio of the investors within their risk-taking capacity.  
• Customization: Portfolio management services are customized based on investors' risk tolerance and financial objectives.

Types of Portfolio Management

The following are the types of portfolio management.

• Active Portfolio Management: In active portfolio management there is a constant buying and selling of securities. The main goal of doing this is to outperform the markets. The transaction cost of this strategy is high because it involves frequent trading and it also requires thorough market research.
• Passive Portfolio Management: Passive portfolio management is often termed index investing. It is a form of investment strategy that seeks to replicate the performance of a specific market index, say the S&P 500.
• Discretionary Portfolio Management: It is the kind of management wherein discretionary powers to invest are given to the portfolio manager. Based on the experience the managers make investment decisions and personalize their strategy for each individual's goal. 
• Non-Discretionary Portfolio Management: In non-discretionary portfolio management the investor makes the final decision with advice from the manager. 

Benefits of Portfolio Management

Portfolio management comes with many benefits some of which are mentioned below 

• Diversification: With portfolio management comes diversification. Investors can reduce the risk of getting significant losses by diversifying their portfolios. 
• Risk Management: It helps investors identify potential risks and create strategies to mitigate them, ensuring that the portfolio remains aligned with their risk tolerance and investment objectives.
• Maximization of Returns: Analytical tools and market insights are used by the managers to carefully identify the opportunities to generate great returns with defined risk parameters.
• Regular Rebalancing: An investor would want the portfolio to rebalance regularly so that it tracks well with his/her objectives, ignoring any differences in market dynamics and personal circumstances.

Steps of Portfolio Management

The following are the steps of the portfolio management process

Step 1:  Setting Investment Objectives

First and foremost, well-defined and measurable goals that are based on the investor's financial situation and risk appetite should be set. Capital growth, income generation, or even wealth preservation could be the objective of investing.

Step 2: Asset Allocation

Asset distribution should be optimized among different types of categories such as stock, bonds, real estate, etc. This may further depend upon the objectives and risk appetite of investment. This is a critical step in risk management.

Step 3: Construction of Portfolio

A portfolio can be constructed by combining the securities selected in a manner that can align with the already decided asset allocation strategy. To reduce risk it is important to ensure there is diversification. 

Step 4: Implementation

Simply by purchasing the selected securities, one can implement the strategy. It is important to carefully do the implementation work considering the timings and market conditions.

Step 5: Monitoring and Review

The last step is to monitor the performance of the portfolio against the benchmarks and the investor’s objectives. 

Conclusion
Understanding the meaning of portfolio management is important for the individual as well as institutional investors to handle the complexities of the financial markets. It empowers the investor with better decision-making according to his or her financial goals and risk tolerance. Portfolio management services will provide a balanced approach with asset allocation, diversification, and risk management. Since there are several types of portfolio management,  investors can choose a type that suits their specific needs. Also, they can use an online trading app so that they stay updated about their investments.